Essay by et October 2002

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This chapter is dealing with the issues of rising health care prices and how it effects Economics. The Gross Domestic Product has grown causing the spending per person on health care to rise. In real terms Health Care today is three times more than in the 1960's. Real Terms means is when the effects of inflation are taken into account. So this means that just because Health Care spending is up does not mean we are in a crisis, because spending on all items are up. For example consumers incomes are higher, so they spend more on things that were thought of as unnecessary in the sixties. Economist use the theory of supply and demand to study , many aspects of the health care expense changes. The information from the supply and demand study shows that health care prices have doubled in the last forty years. Two major problems with the study of supply and demand are: it fails to look at the quality of the care given, and it does not show what consumers actually pay themselves which is the co-payment rate.

People are more likely to pay more to cure a disease than to stitch up a small cut, and people are more likely to go to the doctor if they have a low co-payment rate.

When it comes to health insurance consumers depend on an agent to act on their behalf. In this case the consumer is called the principal. Some tact's used to make sure an agent acts in the best interest of the principal are: Legal and Ethical Restraints, Economic Incentives, and Competition. Even though many consumers can not afford health insurance. Two solutions have been studied to control health care demand. One is when the government steps in to change health care providers without...